Professional sportspeople routinely rely upon accountants to accurately prepare and file their annual tax returns with HMRC. But who bears responsibility when HMRC seeks a penalty for inaccurate information in a tax return? The First-tier Tribunal’s (“FTT”) recent decision in Blackman v The Commissioners for Her Majesty's Revenue & Customs (2016)1 (“Blackman”) is a useful reminder that the mere fact that a taxpayer is a professional sportsperson, and relies upon accountants to prepare their tax returns, may not be sufficient to avoid a penalty for an inaccurate tax return.

This article examines Blackman and the related lessons for athletes. Specifically it looks at:

HMRC’s Penalty Powers: The Legislative Scheme

Blackman v HMRC

Facts

Grounds of appeal

Decision

Comment and tips for athletes

HMRC’s Penalty Powers: The Legislative Scheme

Under Schedule 24 of Finance Act 2007, HMRC has a range of penalty powers that it may apply in various scenarios, including where there is an inaccuracy in a tax return (Paragraph 1). Penalties are calculated as a proportion of the undeclared tax, by reference to whether the relevant inaccuracy was careless, deliberate but not concealed, or deliberate and concealed (Paragraph 1(2), 3-4).

Deductions may be applied for the taxpayer telling HMRC about the inaccuracy, helping HMRC to quantify it and giving HMRC access to relevant documents in order to fully correct it (Paragraph 9-10). The range of minimum penalties is set out at Paragraph 10 of Schedule 24.

Under Paragraph 18 of Schedule 24, a taxpayer who relies on an agent (i.e. an accountant) to complete and lodge his return is not liable for an inaccuracy penalty where the agent is responsible for the inaccuracy, and the taxpayer took “reasonable care” to avoid it. This was the defence that Mr Blackman sought to rely upon in his recent appeal against an inaccuracy penalty.

Blackman v HMRC

Facts

The appellant was a professional footballer who, during the relevant tax year (2012/13), had been transferred between three different football clubs and therefore had three separate periods of employment. He employed professional accountants to prepare and file his tax return for 2012/2013. However the filed tax return only included details for two of Mr Blackman’s three periods of employment, and therefore understated his income for that year. When HMRC raised this, Mr Blackman’s new accountants admitted that there had been a “glaring error” by his previous accountants, and that the third period of employment should have been included on the return.

HMRC amended the tax return to include the additional tax due on the undeclared income. They also sought to impose a penalty for filing an inaccurate tax return. The proposed penalty was set at 15% of the principal sum of additional tax due. This was the minimum penalty that could have been imposed for a careless (but not deliberate) inaccuracy where the discovery was prompted by HMRC.

Grounds of Appeal

Mr Blackman challenged the penalty. He argued that he was a professional sportsperson, and not a tax professional. All relevant paperwork he had received was sent through to his mother for her to send to the accountants, who he had appointed and relied upon to deal with his tax affairs. He was therefore entitled to treat the tax return produced by his accountant as accurate.

HMRC submitted that the responsibility for checking the tax return lay with Mr Blackman, and that as the inaccuracy was a careless one, it was to be assessed by reference to an objective standard.

Decision

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About the Author

Alice McDonald is a barrister in the Commercial and Tax teams at St Johns Buildings, Manchester.

Alice advises and represents corporate clients and individuals on a variety of commercial law and tax law matters, including those with a public law element. She has particular experience in contentious tax disputes, having previously been employed at a leading tax litigation firm, where she worked on cases in the First-tier Tribunal (Tax), High Court and Court of Appeal.

As a keen runner and former rower Alice has a growing interest in sports law.

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